Railtrack's Network Management Statements (NMS)
have become more comprehensive and each annual NMS is now backed
up by an Incremental Output Statement (IOS) which details the
more minor schemes which are proposed. The extent to which individual
PTEs feel comfortable with Railtrack's detailed performance will
depend upon the local relationships and reporting methods.

The delays Railtrack is responsible for have
been reduced although as the Rail Regulator has been keen to point
out, more action in this respect is required.

Whilst the NMS and IOS will not meet the aspirations
of all parties they do provide a clear statement of what is committed,
what is proposed subject to agreement with other parties and some
ideas of future possibilities. This was particularly evident in
the NMS published earlier this year (2000) where less than half
the proposals were firm with the remainder dependent upon the
outcome of the refranchising process. The blueprint for future
investment cannot become clear until refranchising has been completed
and the means of funding the various proposals is clarified.

There are good examples of Railtrack taking
a commercial risk on investment. The Leeds 1st project is one
where Railtrack are investing £165m to increase the capacity
of Leeds Station and its approaches by 50 per cent without any
future commitment to additional revenue. On the other hand there
are some schemes which do not appear to meet the future requirements.
The Manchester South resignalling scheme is linked to the West
Coast upgrade proposals and there is doubt locally about whether
the scheme will provide for the existing local services, never
mind the anticipated growth which will be needed to meet increased
demand.

Increasing track capacity between Coventry
and Birmingham was left out of the West Coast upgrade proposals
altogether. There is now an acceptance from Railtrack and the
sSRA of the need for this investment, although sources of funds
are unclear.

1. ADEQUACYOFTHE RAIL
REGULATOR'S
OVERSIGHT

The Rail Regulator has recently adopted a more
interventionist policy in respect of Railtrack which is welcomed
in respect of improving performance in terms of reliability and
punctuality. His openness in specifying what is expected of Railtrack
and the consequences of non-performance is to be commended.

He has conducted the review of Access Charges
in an open manner and no stakeholder can complain about lack of
consultation. PTEs have co-operated in providing responses during
the consultation process and one of the key themes of their responses
has been the need to take account of social benefits as well as
financial considerations in setting a new scale of access charges.
This is because the network of services supported by PTEs tends
to require more than average subsidy but is vital in the local
context for providing access to employment and reducing road congestion
which are key aspects of the Government's Transport policies.
In addition, local rail services are vital feeders to main line
services on the strategic rail network. The extensive consultation
process does not mean necessarily that he will successfully balance
the views of the relevant parties to obtain the optimum output.
Only time will show whether he has used his judgement well. There
is a real danger in some areas that the marginal costs of increasing
rail services to meet demand in some conurbations may become prohibitively
expensive.

2. THE ROLEOFTHESSRA

sSRA are currently in the process of franchise
renewal which is seeking to create franchises with a relatively
long life to encourage investment and to ensure that franchisees
will be in position long enough to obtain the rewards from investments
made. This process is still in its infancy and no signs have emerged
as to the type of bids which will be successful.

The programme for the order of franchise renewal
has been determined by sSRA without any systematic consultation
or justification. PTEs have general concerns with this new process.
By seeking offers for the GNER franchise and carving Transpennine
out of the current North East franchise there are fears that any
spare capacity which currently exists may be utilised in these
new franchises and not be available at the time the PTE franchises
are due for renewal.

There can be little doubt that if current, let
alone future, demand is going to be met in conurbations the cost
of replacement franchises will increase. Already it is well known
that some current franchisees are making very substantial recurring
losses and Lord Macdonald has been quoted as recognising that
additional funding will be required. There is a fear that if conurbation
franchises are left until last the funding required will not be
available at that time.

Typically for local services in a conurbation
the revenue barely meets the direct operating cost, if that, let
alone the Railtrack charges or the rolling stock leasing charges.
Typically subsidy per passenger is of the order of £3 per
passenger for the 20Km trip. It is most unlikely that substantial
investment can be secured from a new operator given this position.
Hence any substantial improvement in service quality and quantity
can only come from public subsidies via the sSRA and PTAs. As
already stated, the Regulator's review of access charges may exacerbate
this.

At the present time the criteria which sSRA
will be using to decide between conflicting bidders for replacement
franchises is not clear. As co-signatories to Franchise Agreements
PTEs will be keen to ensure that the new agreements provide incentive/penalty
regimes which incentivise the operation in the way intended, make
provision for meeting demand, and provide for quality improvement.

The Local Transport Plan (LTP) Guidance states
that Authorities should act as facilitators with the rail industry
to progress schemes contained in LTPs. It appears to suggest that
Rail Passenger Partnership (RPP) funds should be sought to fund
investment in the railways although block LTP allocation is also
permitted. The implication is that for large projects sSRA will
become the source of funding for rail schemes. The reasons for
this are not clear (even to the sSRA) particularly when capital
investment is being considered.

For capital schemes the presence of an alternative
additional funding source is an advantage but only if the system
allows funding to be committed by sSRA in advance of which are
often time-consuming procedures involving a number of public and
private sector organisations, particularly in major schemes. The
presence of another public sector funding body can only add to
the uncertainty surrounding a project's funding.

The allocation of funding for public sector
investment is inevitably political and it is difficult to see
how the sSRA are equipped to carry out this function. PTEG would
argue strongly that major schemes included by PTAs, PTEs and their
Metropolitan Districts should be considered as an intrinsic part
of the LTP Bid and funded as such and not filtered through funding
available to the sSRA although, clearly, where the scheme is of
strategic importance the involvement of the sSRA will be essential.

The fundamental problem for PTEs wanting to
improve service levels (for example to meet increasing demand)
is that urban commuter networks require high levels of revenue
support. These costs are relatively high in comparison with other
items of PTEs revenue expenditure and this means that continuing
support is vital, either through franchise commitments or on a
case by case basis.

However RPP funding is currently available until
March 2002 only and no assurances can be obtained from sSRA about
any continuation. Hence it is suggested that the quantity of funding
available (£120m) is insufficient and that the length of
support is absurd. For PTEs to feel comfortable with the proposed
system there is a need for the system to be extended in capacity
and in timescale so that there is no prospect of schemes provided
for by revenue grants having to be undone at the end of the grant
period.

The rail system has an important role as part
of the integrated public transport system in most areas. The importance
of achieving wider social, economic and environmental objectives
needs to be recognised and achieved through the new franchise
and investment processes now being developed.

In particular PTEG feels that the current way
in which franchise replacement is being driven, principally by
commercial considerations which, in turn, will affect Railtrack's
expenditure plans, makes it more difficult for those schemes which
have a major social cost benefit return to receive sufficiently
high priority. Whilst the sSRA's strategic rail plan may address
this issue there are concerns that this will be too late allowing
for the pace of replacement franchising and expected announcements
in relation to the Government's 10 year funding plan.

PTEG, therefore, feels that there is a need
for the Government to signal the extent to which it is proposed
to support socially desirable (not necessarily commercial) investment
in the rail network in collaboration with the sSRA and the PTAs/PTEs.